Tax Deductions of 529 College Savings Plans

Tax Deductions of 529 College Savings Plans

College Savings accounts opened through a state 529 plan provide tax deductions and other benefits to the account owner. All money invested grows federal tax-deferred and when used for approved educational expenses are Federal tax free.

Each state has their own rules for treatment of funds invested in 529 Savings Plans. Most allow the funds to grow state tax deferred and the earnings are also state tax free when used for approved educational expenses.

There are differences though. Many states also allow a state tax deduction. Most states will only allow the deduction if the taxpayer opens the account in that state (ex. Massachusetts taxpayer opens a Mass 529 and can take a Mass tax deduction. Mass taxpayer cannot open a New York 529 and take a Mass tax deduction).

There are a few states that allow the deduction as long as the taxpayer opens a state approved 529 account in any state. Pennsylvania allows a deduction of $12,000 per beneficiary per taxpayer per year. Maine taxpayers can receive up to a $250 tax deduction per beneficiary per year. Kansas taxpayers can deduct up to $3,000 for single filers and $6,000 for joint filers per beneficiary per year. Montana taxpayers may deduct up to $3,000 per year ($6,000 if filing jointly).